IELTS & GRE Important Vocabulary: Accounting vocabulary list with definitions

Accounting vocabulary list with definitions

Accounting: Accounting is the process of record financial transactions pertaining to a business or organization or company. The accounting process includes summarizing, analyzing and reporting these transactions to oversight agencies, regulators and tax collection entities. The financial statements used in accounting are a concise summary of financial transactions over an accounting period, financial position, summarizing a company’s operations and cash flows.

What are the types of accounting?
1. Financial Accounting
2. Cost Accounting
3. Auditing
4. Managerial Accounting
5. Accounting Information Systems
6. Tax Accounting
7. Forensic Accounting
8. Fiduciary Accounting

What is the purpose of accounting?
The objective of accounting is to record financial transactions in the books of accounts to identify, measure and communicate economic information. Moreover, tax reporting agencies require you to keep books at a minimum level that tracks income and expenditure.

Accounting vocabulary with definitions

Accounting: Accounting or accountancy is the measurement, processing, and communication of financial and non financial information about economic entities such as businesses and corporations. Accounting, which has been called the language of business, measures the results of an organization’s economic activities and conveys this information to a variety of users, including investors, creditors, management, and regulators.

Accounts Payable: Accounts payable and its management is a critical business process through which an entity manages its payable obligations effectively. Accounts payable is the amount owed by an entity to its client/suppliers for the goods and services received.

Accounting Equation: The accounting equation is considered to be the foundation of the double-entry accounting system. The accounting equation shows on a company’s balance that a company’s total assets are equal to the sum of the company’s liabilities and shareholders equity.

Accounts Receivable: Accounts receivable are legally enforceable claims for payment held by a business for goods supplied or services rendered that customers have ordered but not paid for. These are generally in the form of invoices raised by a business and delivered to the customer for payment within an agreed time frame.

Accrual Accounting: Accrual refers to an entry made in the books of accounts related to the recording of revenue or expense paid without any exchange of cash.
Accrual accounting helps a company to maximize its operational abilities by spreading out its revenue recognition and receivables. The increased efficiency advantage is one of the main reasons that generally accepted accounting principles (GAAP) requires accrual accounting; the reporting of sales is another.

Accruals: Accrual of something is, in finance, the adding together of interest or different investments over a period of time. It holds specific meanings in accounting, where it can refer to accounts on a balance sheet that represent liabilities and non-cash-based assets used in accrual-based accounting.

Amortization: The action or process of gradually writing off the initial cost of an asset. An amortization refers to spreading payments over multiple periods. The term is used for two separate processes: amortization of loans and amortization of assets. In the latter case it refers to allocating the cost of an intangible asset over a period of time.

Asset: A useful or valuable thing or person. Assets are persons or things that can produce value. People can be assets because of the value they bring to a relationship or organization. Things which are assets have value for the owner because they can be converted into cash. Cash on hand is also considered an asset.

Audit Trail: A system that traces the detailed transactions relating to any item in an accounting record. An audit trail is a security-relevant chronological record, set of records, and/or destination and source of records that provide documentary evidence of the sequence of activities that have affected at any time a specific operation, procedure, or event.

Auditors: A person who conducts an audit. Auditors are specialists who review the accounts of companies and organizations to ensure the validity and legality of their financial records. They can also act in an advisory role to recommend possible risk aversion measures and cost savings that could be made.

Balance Sheet: A balance sheet is a summary of the financial balances of an individual or organization, whether it be a sole proprietorship, a business partnership, a corporation, private limited company or other organization such as government or not-for-profit entity.

Bookkeeping: Bookkeeping is the recording of financial transactions, and is part of the process of accounting in business. Transactions include purchases, sales, receipts, and payments by an individual person or an organization/corporation.

Budgeting: Budgeting is the process of creating a plan to spend your money. This spending plan is called a budget. Creating this spending plan allows you to determine in advance whether you will have enough money to do the things you need to do or would like to do.

Capital Stock: Capital stock is the amount of common and preferred shares that a company is authorized to issue recorded on the balance sheet under shareholders’ equity.

Capital Surplus: Capital surplus, also called share premium, is an account which may appear on a corporation’s balance sheet, as a component of shareholders’ equity, which represents the amount the corporation raises on the issue of shares in excess of their par value of the shares.

Capitalized Expense: A capitalized cost is an expense that is added to the cost basis of a fixed asset on a company’s balance sheet.

Cash Flow: The amount of cash or cash-equivalent which the company receives or gives out by the way of payment(s) to creditors is known as cash flow.

Cash Basis Accounting: An accounting method wherein revenues are recognized when cash is received and expenses are recognized when paid.

Chart of Accounts: A chart of accounts is a list of the categories used by an organization to classify and distinguish financial assets, liabilities, and transactions.

Closing the Books: To close those books simply meant making sure that all the pieces of information within a certain period (usually a month) were accounted for so that the information provided in reports like the balance sheet and income statement would be accurate for that period.

Cost Accounting: Cost accounting is defined as a systematic set of procedures for recording and reporting measurements of the cost of manufacturing goods and performing services in the aggregate and in detail.

Credit: The ability of a customer to obtain goods or services before payment, based on the trust that payment will be made in the future.

Debit: An entry recording a sum owed, listed on the left-hand side or column of an account.

Departmental Accounting: Departmental Accounting refers to maintaining accounts for one or more branches or departments of the company.

Depreciation: A reduction in the value of an asset over time, due in particular to wear and tear.

Dividends: A sum of money paid regularly (typically annually) by a company to its shareholders out of its profits.

Double Entry Bookkeeping: Double-entry bookkeeping, in accounting, is a system of book keeping where every entry to an account requires a corresponding and opposite entry to a different account.

Equity: In finance, equity is ownership of assets that may have debts or other liabilities attached to them. Equity is measured for accounting purposes by subtracting liabilities from the value of an asset.

Financial Accounting: Financial accounting is the field of accounting concerned with the summary, analysis and reporting of financial transactions related to a business.

Financial Statement: Financial statements are formal records of the financial activities and position of a business, person, or other entity. Relevant financial information is presented in a structured manner and in a form which is easy to understand.

Fixed Asset: Fixed assets, also known as long-lived assets, tangible assets or property, plant and equipment, is a term used in accounting for assets and property that cannot easily be converted into cash.

General Ledger: A general ledger, also known as a nominal ledger, is a bookkeeping ledger that serves as a central repository for accounting data transferred from all subledgers like accounts payable, accounts receivable, cash management, fixed assets, purchasing and projects.

Goodwill: Friendly, helpful, or cooperative feelings or attitude.

In The Black: A company is said to be in the black if it is profitable or, more specifically, if the company produces positive earnings after accounting for all expenses.

In The Red: The phrase in the red means that business is in debt and owes money. The red ink signifies financial losses for the business.

Income Statement: An income statement is one of the three major financial statements that reports a company’s financial performance over a specific accounting period.

Inventory: Inventory is the array of finished goods or goods used in production held by a company.

Inventory Valuation: An inventory valuation allows a company to provide a monetary value for items that make up their inventory. Inventories are usually the largest current asset of a business, and proper measurement of them is necessary to assure accurate financial statements.

Invoice: A list of goods sent or services provided, with a statement of the sum due for these; a bill.

Job Costing: Job costing is accounting which tracks the costs and revenues by “job” and enables standardized reporting of profitability by job.

Journal Liability: You accrue a liability in one period and pay the expense in the next period.

Liquid Asset: An asset is said to be liquid if it is easy to sell or convert into cash without any loss in its value.

Loan: A thing that is borrowed, especially a sum of money that is expected to be paid back with interest.

Master Account: A Master Account is the record of financial rights and obligations of an Account Holder and the Administrative Reserve Bank with respect to each other, where opening, intraday and closing balances are determined.

Net Income: In business and accounting, net income is an entity’s income minus cost of goods sold, expenses, depreciation and amortization, interest, and taxes for an accounting period.

NonCash Expense: A non-cash charge is a write-down or accounting expense that does not involve a cash payment.

Nonoperating Income: Non-operating income, in accounting and finance, is gains or losses from sources not related to the typical activities of the business or organization. Non-operating income can include gains or losses from investments, property or asset sales, currency exchange, and other atypical gains or losses.

Note Operating Income: Operating income is the amount of income a company generates from its core operations, meaning it excludes any income and expenses not directly tied to the core business.

Other Income: Also called other income, gains indicate the net money made from other activities, like the sale of long-term assets. These include the net income realized from one-time non-business activities, like a company selling its old transportation van, unused land, or a subsidiary company.

Payroll: A list of a company’s employees and the amount of money they are to be paid.

Posting: An appointment to a job, especially one abroad or in the armed forces.

Profit: A financial gain, especially the difference between the amount earned and the amount spent in buying, operating, or producing something

Profit/Loss Statement: The profit and loss (P&L) statement is a financial statement that summarizes the revenues, costs, and expenses incurred during a specified period, usually a fiscal quarter or year.

Reconciliation: In accounting, reconciliation is the process of ensuring that two sets of records are in agreement. Reconciliation is used to ensure that the money leaving an account matches the actual money spent. This is done by making sure the balances match at the end of a particular accounting period.

Retained Earnings: The retained earnings of a corporation is the accumulated net income of the corporation that is retained by the corporation at a particular point of time, such as at the end of the reporting period.

Revenue: Revenue is the income generated from normal business operations and includes discounts and deductions for returned merchandise. It is the top line or gross income figure from which costs are subtracted to determine net income.

Shareholder Equity: Shareholder equity (SE), also referred to as shareholders’ equity and stockholders’ equity, is the corporation’s owners’ residual claim on assets after debts have been paid. Equity is equal to a firm’s total assets minus its total liabilities.

SingleEntry Bookkeeping: Single-entry bookkeeping or single-entry accounting is a method of bookkeeping relying on a one sided accounting entry to maintain financial information. It is known as an incomplete or unscientific method for recording transaction. Most businesses maintain a record of all transactions using double-entry bookkeeping.

Statement of Account: A statement of accounts is a document that reflects all transactions that took place between you and a particular customer for a given period of time. Generally business owners send statements of accounts to their customers to let them know how much they owe for sales that took place on credit during that period.

Subsidiary Accounts: A subsidiary account is an account that is kept within a subsidiary ledger, which in turn summarizes into a control account in the general ledger. A subsidiary account is used to track information at a very detailed level for certain types of transactions, such as accounts receivable and accounts payable.

Supplies: Make available to someone; provide.

Transaction: An instance of buying or selling something. A transaction is a completed agreement between a buyer and a seller to exchange goods, services, or financial assets.

Treasury Stock: A treasury stock or reacquired stock is stock which is bought back by the issuing company, reducing the amount of outstanding stock on the open market.

Write-down: A reduction in the estimated or nominal value of an asset.